Between government support measures and loan deferrals Canadian households have been insulated from the full effects of the economic turmoil brought on by the Covid-19 outbreak — that’s set to change as those supports start disappearing.

In a new report, Fitch Ratings noted that, while the pandemic has had an unprecedented impact on the economy, “much of the negative effects are yet to be seen on households.”

Despite plunging GDP and a surge in unemployment, insolvencies are down by around 40% in recent months compared with 2019, and consumer credit has continued to perform, the report said.

Temporary government supports, payment deferrals, and rock-bottom interest rates have given households “extra breathing room while the economy recovers from the pandemic’s unprecedented impact,” it noted.

However, Fitch said that it expects to see insolvency volumes increase and weaker credit performance in the months ahead.

“Households are expected to be pressured once [government support] programs end, especially with the CERB payments expected to end in August/September for most applicants,” it noted.

In preparation for these tougher conditions, Canadian banks have already recorded massive loan loss provisions.

“Provisions were predominately taken against credit cards and personal loans in retail banking and against commercial loans exposures to the energy, retail and service sectors,” said Fitch.

At this point, Fitch does not expect the banks to take significant additional provisions, unless the economic outlook deteriorates further, it said.

“However, given some variation among bank forecasts, volatility in oil markets, and persistent downside credit risk related to the pandemic, continued elevated provisions against both performing and non-performing loans cannot be ruled out,” said the report.